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Chipotle Won't Stop Growing

With restaurant companies like Noodles & Company (NASDAQ: NDLS) and Potbelly (NASDAQ: PBPB) launching IPOs in recent months, many analysts are asking the same question: which is the next Chipotle (NYSE: CMG) ? This is of course a compliment to Chipotle, as it refers to the company's massive success at fast-casual dining and the extraordinarily out-sized returns it has generated for investors over the years. However, in the mad dash to find the next Chipotle, many investors seem to be missing a major point: Chipotle is not done growing, not by a long shot.

It's not the foodI am quite fond of Chipotle's burritos and tacos and I keep coming back for more. However, the success of Chipotle lies not merely in the brand's ability to offer flavorful foods to consumers, but rather in its simple but effective business model.

Chipotle's approach to fast-casual dining is deceptively simple; offer patrons a wide variety of choice with regard to core food products, maintain a focus on responsibly raised meats and fresh produce, and combine it with a streamlined, build-it-yourself process that operates in an efficient and hassle-free manner.

Chipotle founder, chairman and co-CEO Steve Ells acknowledged as much in a recent statement. He explained, "I believe that Chipotle's success isn't necessarily based on burritos and tacos, but rather [on] a unique system that combines our passion for using great ingredients, classic cooking methods and an interactive service format that allows customers [to] pick and choose exactly what they want to eat."

Most significant about the company's business model is that it is a process that can be applied to numerous food themes. We already know that the company is not stopping at Mexican food because it has already opened several ShopHouse locations, which are the company's take on Southeast Asian cuisine.

ShopHouseThe potential of the ShopHouse brand is reason enough to own shares of Chipotle going forward. With similar focus on classic cooking methods, high quality ingredients, and interactive service, ShopHouse is shaping up to be a Chipotle Mexican Grill in the making.

Since the initial consumer reviews of ShopHouse are on par for the most part with Chipotle Mexican Grill, there is no reason to doubt that the new restaurant brand can enjoy similar success. Currently there are over 1,530 Chipotle Mexican Grill locations, only 14 of which are international. The Mexican-themed chain is still growing rapidly as well, as management is averaging over 40 new store openings a quarter so far in 2013. With only three ShopHouse locations in service at the current time, the opportunities to expand the new concept are substantial.

What's to stop the company there, though? While ShopHouse is still very much in the early stages of growth, so much so that management has warned investors against considering the brand to be a major driver of growth for a while, there is also no valid reason to believe that the company will stop there. The already-proven format could potentially be applied to a myriad of other food cultures in addition to the Mexican and Southeast Asian themes.

Still a leader in growthHow can Noodles and Potbelly expect to be the next Chipotle when they struggle to even match the much larger company's revenue growth? The following is a breakdown of all three companies' projected growth rates for fiscal 2014:

Company

Chipotle

Noodles

Potbelly

Revenue Growth 2014

16.8%

16.4%

13.5%

EPS Growth 2014

23.9%

37.4%

54.2%

As the above table indicates, Chipotle is still projected to experience the most robust revenue growth in 2014 despite being more than ten times the size of both Noodles and Potbelly, as judged by market capitalization.

However, with regard to earnings per share, the two smaller companies prove more nimble. Potbelly's expected 2014 earnings-per-share growth rate of 54.2% is more than double Chipotle's still impressive 23.9%. Noodles' EPS growth rate of 37.4% is also significantly better than Chipotle's.

Final Foolish thoughtsChipotle has enjoyed massive success over the years in the fast-casual dining segment and investors along for the ride have reaped the rewards. However, it is a mistake to pass on shares of Chipotle solely in hopes of finding a younger, smaller company. In many ways, Chipotle is a better growth investment than newer companies like Noodles and Potbelly, even after its massive expansion across the United States.

Investors considering Chipotle need to focus on the company's international expansion and new ShopHouse concept. If either is successful, the company's growth story is nowhere close to being over. It is still not too late to own shares of Chipotle for long-term growth.

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